New Regulation on Gross Split Production Sharing Contracts for Upstream Oil and Gas Business Activities
On August 12, 2024, the Minister of Energy and Mineral Resources (the “MEMR”) issued MEMR Regulation No. 13 of 2024 on Gross Split Production Sharing Contracts (“Regulation 13/2024”).
Regulation 13/2024 aims at (i) improving efficiency and effectiveness of the gross split production sharing scheme for oil and gas production, (ii) adapting with the investment climate and dynamics in upstream oil and gas business activities; and (iii) implementing Article 17(4) of Government Regulation No. 53 of 2017 on Tax Treatment for Upstream Oil and Gas Business Activities through Gross Split Production Sharing Contracts.
Regulation 13/2024 revokes and partially revokes the following regulations:
Regulation 13/2024 introduces an extensive range of new provisions in comparison with Regulation 8/2017, including but not limited to (i) calculation of profit-sharing in a gross split Production Sharing Contract (a “PSC”), (ii) additional profit-sharing percentage, (iii) by product profit-sharing, and (iv) local content requirement in a gross Split PSC.
Also, the conversion of a gross split PSC into a cost recovery PSC or vice versa was stipulated in Article 34 of Regulation 23/2021. And, now it is stipulated in Regulation 13/2024.
Further, on September 19, 2024, the MEMR issued MEMR Decree No. 230.K/MG.01/MEM.M/2024 of 2024 on Implementation Guidelines and Components of Gross Split Production Sharing Contracts (“Decree 230”). Decree 230 is enacted to implement Article 9(3) of Regulation 13/2024.
Decree 230 supplements Regulation 13/2024 by determining the amount of the base split in a gross split PSC and the formula to calculate components based on the classification of upstream oil and gas businesses.
We set out the key points of Regulation 13/2024 in comparison to the revoked regulations and the key points of Decree 230.
♦ Calculation of Profit Sharing in Gross Split PSCs
Regulation 13/2024 adjusts the calculation of the profit sharing in a gross split PSC. The calculation is based on the classification of upstream oil and gas businesses, each with different calculation components. The following table highlights the comparison regarding such a calculation between Regulation 13/2024 and Regulation 8/2017.
♦ Additional Profit-Sharing Percentage
In comparison with Regulation 8/2017, Regulation 13/2024 expands the scope for additional profit-sharing percentages, allowing them not only during the approval of the first or subsequent site developments. Specifically, the following are the conditions where an additional profit-sharing percentage may be granted:
- the approval of the first site development plan and/or its changes;
- the approval of a subsequent site development plan and/or its changes; and/or
any extension of the cooperation contract or management of the work area for an expiring
♦ By Product Profit-Sharing
Regulation 13/2024 introduces a calculation of profit sharing from the sale of by product deriving from oil and gas business operations. In this context, the contractor and the state shall share the profit of such sales based on the base split percentage.
♦ PSC Conversion
As a note, Article 34 of Regulation 23/2021 has been revoked, where the mechanism to convert the form and main provisions of PSC is now stipulated under Regulation 13/2024. The following table highlights the comparison regarding such a mechanism:
♦ Determination of Base Split in Gross Split PSCs
Decree 230 sets the amount of base split in gross split PSC, which was not stipulated under Regulation 13/2024. In this case, the amount of base split is as follows:
- 53% (fifty three percent) of state’s share and 47% (forty seven percent) of contractor’s share for petroleum.
- 51% (fifty one percent) of state’s share and 49% (forty nine percent) of contractor’s share for natural gas.
♦ Components Calculation Formula
Decree 230 supplements Regulation 13/2024 by stipulating the calculation formula of the variable and progressive components in non-conventional and conventional oil and gas businesses (i.e., fixed and variable components).
AKSET
Please contact Johannes C. Sahetapy-Engel (jsahetapyengel@aksetlaw.com) or Justin Amadeus (jamadeus@aksetlaw.com) for further information.
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